World's biggest oil company ExxonMobil is in talks with India's top technology firms and multinational vendors for outsourcing of several IT contracts worth up to $1 billion.
A day after British Petroleum (BP) formally awarded over $1.5-billion outsourcing contracts to TCS, Infosys and Wipro along with IBM and Accenture, top Indian offshore vendors including L&T Infotech and HCL Technologies—along with other MNC vendors—have locked horns with each other for almost $1-billion outsourcing deal being fleshed out by ExxonMobil.
In a year where large outsourcing customers are seeking to reduce their operational costs by up to 30%, Indian technology firms are set to gain from increased offshoring of application development, maintenance and support.
"The discussions are at an early stage. However, ExxonMobil wants to work with fewer, large and medium-sized vendors at lower rates," said a US-based person familiar with ExxonMobil's outsourcing strategy. He requested anonymity because he is not authorised to speak with media. Exxon runs on SAP platform across the company's chemical and oil businesses spread over 200 countries with nearly 80,000 employees.
Large oil, gas and utility firms such as Royal Dutch Shell, Chevron, ExxonMobil and BP run their business processes powered by complex ERP software from SAP and Oracle. At a time when their operational and functional heads are demanding lower operational costs, outsourcing and offshoring of ERP maintenance and support is gaining momentum. Research firm Gartner says the economic turbulence is a major catalyst for outsourcing of ERP systems and services.
For instance, BP expects to save $500 million over five years by reducing the number of its suppliers to five from around 40 and sending more projects to be delivered from cheaper offshore locations such as India.
When contacted by ET last month and again on Thursday, ExxonMobil spokesman Robert Earl Young did not respond. Indian vendors TCS, Wipro, L&T Infotech and HCL Technologies also did not offer any specific comments about any potential new business from Exxon.
However, most of these new contracts are being negotiated for at least 10-15% lower billing rates, with almost 90% of the contract to be delivered offshore. "BP has extracted pricing cuts in the range of 7.5-15% from most vendors," said CLSA analysts Bhavtosh Vajpayee and Nimish Joshi in their Wednesday research note about the BP contract. "Offshore share of delivery is expected to go up materially from 70% to up to 90%," they added.
Experts believe that customers are increasingly giving away their application development and maintenance projects to Indian and offshore firms while letting IBM to remain the master integrator. "When Telstra and BP recently consolidated their supplier base, IBM was chosen the master supplier with Infosys, EDS, TCS, Wipro and Accenture working on niche application projects," said an outsourcing expert based in Australia.
Experts such as Bob McDowall, research director at UK-based TowerGroup, say that oil firms are not really new to offshoring. "The oil industry has a much longer history in dealing with outsourcing and offshoring than for example the financial services sector," McDowall said.
In large outsourcing contracts, the infrastructure management piece—or the services involving management of computer systems, servers and other enterprise systems—is bigger in terms of value. For instance, when Australian phone firm Telstra awarded $1.2 billion worth of contract last month, IBM walked away with the $750-million infrastructure piece, while Infosys and EDS shared the $450 million application pie. IBM also managed to gain almost 40% of $1.5 billion BP contract.
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